Furious retailer ditches games, attacks industry

Next-gen.biz reports that the US-based retailer lists the many reasons for the decision to ditch games on its website, with tiny margins, price wars, distribution and game quality all cited in its seven point-rant. It reads:

1. Video Game Industry Does Not Care

The video game industry only cares about mass merchandisers like Toys-R-Us, Wal-Mart, Best Buy, etc. They completely ignore the needs and wants of the medium to small game retailers.

2. Can’t Make Money

You may not care whether or not we make money, but we cannot continue to pay to sell video games. It is impossible for us to make money selling video games. Video Game Manufacturers set the price using what is called MSRP (Manufacturers Standard Retail Price). Here is an example of the video gaming industry greed: they set the retail price at just $5 above the product cost (buy it for $54.99, sell it for $59.99). When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale—that is a .01% gross margin (note the decimal point). The game companies make their profit selling to us. We make no profit selling to you.

3. No Price Protection + Games Prices Drop Quickly

Surprise, Surprise….we do not receive price protection. Price protection is a way to decrease the risk of purchasing a product that may not sell. It puts the responsibility of producing a quality product in the hands of the manufacturer. When something doesn’t sell, the manufacturer reduces the MSRP. If the MSRP falls, price protection would give us our initial investment back. Again, we are not big enough to receive it. We all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap. So take the fact that we only make $5, now if the price of a game drops $20, we are now losing $15 every sale.

4. No Product Returns

This one blows our minds; we are not big enough to return products. The game industry releases many bad games, and word of mouth spreads fast to the consumer. All of those bunk games sit on our shelves. If we do end up selling them, we lose more money, due to the lack of price protection. They won’t let us return the bombs. So if we buy a bad title, we are stuck on an industry-induced money losing ride through the land of price drops. Of course, if the video game industry produced quality games, we wouldn’t have this issue.

5. Distribution is Dumb

Since we are not one of the top game retailers we have to buy through a middle man or distributor. First off, this obviously raises the cost of the product, and second, distribution is horrendous for new releases. We get them 3-4 days after street date. You can buy it from the store before we can ship it to you. This is completely unacceptable to the customers that pre-order games from us.

6. Games Are Better Suited for Brick and Mortar Retailers

There is not a huge selection of games; it is a new release industry (majority of sales are in the first two weeks of release). Large retailers make money on other products after they get you in the door. We do not; most people come to a website to purchase a video game, not a video game and a bunch of movies. There is also no game catalog market, if you wanted to buy an old copy you would buy it used. So retailers are able to stock all new games, and they can return the ones that don’t sell. Games bring in great foot traffic for physical retailers and they make money elsewhere. EB Games/Gamestop relies heavily on their used business. It is very difficult for online retailers to have an advantage, except for convenience.

7. The Final Reason

The final reason we killed our video games division is the industry does not let us provide the same level of service that we do with DVDs. We cannot continue to have our good name tarnished when we cannot control how we receive the product. We do not want to lose potential long-term customers due to a poor experience with a video game that is outside of our control. We attempted for the past five years to make it work but decided to call it quits. It breaks our hearts. Everyone at DVD Empire is a huge fan of PC and video games, and we are truly sad to see this division go.Agree? Disagree? Email us and have your say.

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MCV is the leading trade news and community site for all professionals working within the UK and international video games market. It reaches everyone from store manager to CEO, covering the entire industry. MCV is published by NewBay Media, which specialises in entertainment, leisure and technology markets.